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We’ve talked a lot on SaaStr about how to get from $1m to $10m, $2m to $5m, $10m to $30m, etc. etc.

One area we haven’t talked as much about is getting from say $100k in ARR to Initial Traction, or $1-$2m in ARR. A bit, but not as much.

The reason is while I believe for a Given ACV, everyone sort of scales the same way after Initial Traction … we all find different ways to get to Initial Traction. To the first $1m in ARR, to do the Impossible. Some of us are good at outbound, and we literally network and call and email our way to $1m in ARR. Others are content marketing geniuses and build a mini-brand abnormally early. Others are great at PR. Or smothering what few leads they do have with love.

We all hack our way to $1m in ARR a bit differently, albeit from the same general large playbook.

So when someone asks me at say $8k a month in MRR, from say 30 or 50 or 100 customers or whatever … how they can get to $1m ARR faster … I really have only two answers. One tactical, one strategic.

The tactical answer is this: Double Down on Whatever Has Produced You Even a Single Customer. Because since no one has ever hear of you, any possible subvertical, any channel, any keyword, any blog post that gets you just one single customer … will get you at least one more. And probably 10 more. So double down your time and efforts on anything that has even remotely worked.

The thing is, this probably won’t help at all getting to $1m in ARR any faster. Yes, your first customers will refer you to others, get you more leads. Absolutely. It will work. It always works, as long as you make them truly, attitiduinaly loyal. (More on that here). The problem is time.

Our friends over in B2C talk a lot about viral coefficients. How quickly one WhatsApp user gets you another. How quickly your social map explodes across some new app.

It turns out in B2B it’s there, it’s just usually, a lot slower.

Let me explained how it worked for us at EchoSign. EchoSign is a somewhat collaborative app, in that when I send you a contract to sign, it goes from one org to another. One company to another. That creates a viral exposure and opportunity for the signer to potential register, try the app, play with it, use a Free version or Free Trial and … eventually .. convert to paid. You can see our early user growth in the chart above.

And we could track the viral conversions quite easily. From date of first contract send to New Signer, to how long it took for that new account to convert to paid.

The answer was: 8 months.

Eight months from one paid customer to product another, on average. Sometimes faster, of course. Sometimes far, far longer. And often in took multiple exposures (say 3) before someone would really get going and buy.

So for the first year, that was incredibly painful. Because we had so few customers in the early days, that even after 8 months, they could only beget us a handful.

It really wasn’t until the end of Year 2 that viral really kicked in. That’s just the math of a low viral coefficient. And it didn’t even get good until Year 3, when we finally had a large enough installed customer base, using the product, to become our second largest source of new customers. Today the best SaaS companies are scaling faster, so you may see material results faster. Maybe. But you still have the physics of lower viral coefficients to overcome.

I’d say typically, SaaS apps don’t have enough customers to see the material, economic benefits of viral revenue until they cross $1m-$2m in ARR at the earliest. You may see hints of it before, and in your leads, but usually, there aren’t enough customers or time for it to move the needle as a material revenue contributor before then.

Now, if you’re building a free B2C app, where you need tens of millions of users to get to Initial Scale, that’s a disaster.

But in SaaS, when you’re on a 7-10 year journey to $100m in ARR, it actually doesn’t matter that much if your viral coefficient is low when you get the viral customers. Faster is better of course. But it’s all still good, so long as it comes and it’s not the only source of new customers. And when it does come, it comes on materially, and strong.

So what’s my point? My point is Viral is a Medium and Long Game in SaaS. It can’t make you in Year 1, usually. Sometimes, e.g., DropBox (muchly) or Slack (maybe). But not usually. But it can help in Year 2, maybe materially. And then really take off after that.

But it’s no short term magic card. Epic in the long run, but potentially immaterial in the early days. Just plan around that for your so-called “viral” SaaS app.

Back in ’05 and ’06, when guys like me were trying to figure out where SaaS 2.0 was going and what it meant, everyone wanted to learn from Eloqua. We snuck into the Eloqua party at Dreamforce in ’06 to try to meet Mark and learn more.

Mark’s current company is Influitive. It’s a company that, like Eloqua, was perhaps a tiny bit early when it was started, blazing a path. But luckily, today the markets are just so much bigger and faster. Influitive lets you focus on your real champions, the customers that are your true advocates, and leverage them to more satisfaction and revenues. It’s on track to cross eight-figures in revenue in ’15 after a very strong, break-out ’14.

The major you didn’t take in college. The person you could have asked out – but you bailed. That horrendous email or tweet that should never have seen the light of day. How many of us have the running inner dialogue of “If I had a chance to do that differently, I would have done it better”?

Hindsight is 20/20 and looking back provides exceptional learning to those willing to dust themselves off and go for it again.In my second time creating a new SaaS category, I’m bringing the same passion. I’m tapping some of the ideas that worked the first time around, with my marketing automation pioneering startup, Eloqua. But this time I’m also making some notable changes based on valuable experiences or past mistakes to make ‘version 2.0’, Influitive, that much better.

Launching and scaling a SaaS company is hard enough. Developing an entirely new category is an Everest climb compared to the category entrant’s pleasant Sunday jaunt up the hill. You don’t have the luxury of just being a little better, faster, cheaper than the incumbent tech. There isn’t a reference point for comparison.

Successful category creators evangelize the fundamental value of a new way of life. It is a revolutionary act, conjuring value from thin air – or better said, value from synapses, because categories are created in the minds of your prospects, not your marketing department.

As CEO of a new category, there is a non-negotiable principle that sets it apart. The prime directive is to market, nurture, exploit the category.Great category creators like Uber, Tesla, Salesforce have showed how it’s done. It is not easy. It means double the marketing requirements, because you need nurture the category you have helped to co-create with your early customers, and also market your company as the best example of that category. It puts extra pressure on the product team to get to fit fast and drive powerful word of mouth – necessary to keep distribution costs under control.

With that said, I have learned a few things about how to do this. Even with all of the disruptive technology around today, some things remain the same. But others have fundamentally changed, and/or I’ve learned what not to do on the second go.

Lessons learned, tactics repeated

Customer success is the bedrock on which everything else is built – Staying customer obsessed is the cornerstone of creating a SaaS category. Not customer focused. Maniacal measurable customer value obsession. Do whatever you need to do to generate measurable value for the customer, even if it doesn’t feel “scalable”. While your customer profitability will initially be anemic at best, with this acute focus on delighting customers, attempting to scale without a proven and trusted method for managing your most important relationships is a fools errand. Delighted customers scale well through sharply higher LTV (account growth and referrals). More than makes up for the effort spent to deliver value. Once you figure out the model for making customers successful, you can automate to lower service costs. Our VP of Customer Success increased accounts per account manager from 8 to 45 in just a couple of years through intelligent automation – while increasing customer satisfaction and advocacy.

Determined focus on lead generation – Success in B2B SaaS is largely about building a vision and efficiently converting the resulting awareness into leads. You can never stop generating leads …. Ever. I dream about lead generation and I obsess about the SQO (sales-qualified opportunity) numbers more than the MRR numbers. The SQOs – and the velocity of SQO generation (and even acceleration, if things are going really well) tell you whether or not your message is resonating. Lead flow that is increasing in quality and quantity is an indicator of healthy category creation. That the market is growing at an appropriate rate to support your hiring. A CEO needs to be involved from a lead gen standpoint due not only because more qualified, senior decision-maker leads that close larger and faster are generated, but because it is the best way to directly learn about how your message and product are resonating with the market.

“Rocketship talent” – Find the up-and-comers, the stars before they’re universally acknowledged as stars. The biggest hiring mistakes I have made have been with people who can do the job in their sleep. Execs that have a gap to fill in their experience are excited to come to work every day, to learn and grow. Yes, they will make mistakes. But my experience is that their passion makes up for those errors 10 times over. I spend at least 25% of my time identifying and bringing on team members who are unproven legends in the making, and helping them develop into the executives they have the potential to become.

A commitment to pushing the knowledge frontier - Creating a category relies on an unrelenting focus on thought leadership in order to win the war of ideas. Ideas compete much more viciously than even the fiercest of product rivals.

You’ll have the nay-sayers.

The non-believers.

Or worse…the non-interested.

To win them over you need to be producing innovative and exciting thoughtware. You need a sustainable, repeatable process for unearthing, winnowing and developing the unique ideas that will excite your market. Open minds = open wallets.

Dominating market segments and delivering to the under-served hero - The goal of a category creator is to ultimately dominate a market. Dominate to me means a minimum of 5x RMS (relative market share). For example, if you are the market leader with 40% share, that means that the next largest player has 8%. Not that easy to do, if it’s a huge market. But if you define your initial target market narrowly enough, it’s doable. Huge markets are made up of hundreds or even thousands of nano-market segments. Finding and delivering value to these submarkets is a fundamental requirement to asserting a dominant market position.

Another important concept is that of elevating and celebrating the under-served hero. At Eloqua, it was the quantitative, process oriented demand gen marketer. At Influitive, it’s both advocate marketers and the advocates they serve. If you choose the right customer and user that is undergoing massive growth due to underlying disruptive technology, you will have a major brand asset that will keep on giving long into the future.

Learned the hard way, changing things up

Greater emphasis on investing in people and culture – At Eloqua, I was a maniac on customer success. I wanted to be out in the field with the sales guys and the account managers as much as possible. Too late in my tenure did I learn that happy employees are key to category success, because nothing drives customer delight like delighted employees. This means supporting team member performance and development both in their everyday roles and in their long term aspirations. Peter Drucker famously opined that “Culture eats strategy for breakfast” and we recognize that in order to hit our strategic goals, we need a unique and healthy corporate culture to get there (Check out our awesome Glassdoor reviews!). Culture does not mean more perks. It means great management (and management training), accountability, transparency in decision making, inclusiveness, celebration. And above all, empowerment of every individual to do what they need to do, to say what they want to say, and create a better experience for themselves and everyone around them.

Better handle on board management – I generally felt that our board was a nuisance, at best, when I was CEO of Eloqua. Learning from my experience, it was priority to build a world class, independent board right from the get-go at Influitive. We govern ourselves as close to public company style as possible for our stage. I talk to board members on a weekly basis and all board members receive a semi-automated report daily on our progress, which includes deals won, demos, new hires, and insights from our team. By keeping lines of communication open, meetings fun and productive and mixing up formal and informal sessions, our board is serving its purpose of providing direction and support.

User experience at the core – Those of you who have used Eloqua software in the aughties would know that user experience was not a strong suit of the Eloqua product line. Here at Influitive, from day 1, we have had an internal mission to make sure our product is a joy to use. That means hiring people who have empathy for users, and have skills on mapping user flows, understanding friction points, conducting user research. A great UX is the most important feature-set. Not an overlay. Not something that we will get around to addressing at some point. We constantly experiment to find better ways to deliver to our users and leverage our product for our own needs wherever possible so we are in the ‘user-seat’, or eating our own ice-cream as we call it here.

Swinging for the fences - While I did have big dreams at Eloqua, I was mostly concerned with surviving another quarter, another year. This time, we have higher ambitions, we want to win it all. And that means extraordinarily high rates of growth, with minimal decay rate on that growth. High growth in every time frame – this month, next quarter, next year, 3-5 years from now. Think about how Salesforce or LinkedIn is practically a different company every year, in order to keep their growth rate as high as possible. It means that the seeds of the next growth idea must be planted ahead of time. It means that the barriers against future competition need to be erected early. And it means that we and our investors will get a strong return from equity financing. Jason discusses going big on round 2 in a great post here.

Being more proactive about ‘customer protection’ - Unearthing a category brings in the competition. Fast. Innovative. Without warning. We did not spend much time thinking about anti-competitive “moats” at Eloqua, as the company grew accustomed to a life without serious competition. That situation changed rapidly, and when it did, there were insufficient barriers erected to maintain high growth and renewal rates. This time, we are anticipating insanely vicious competition, and we have a plan. We are building a multi-layered defence. We are creating powerful incentives to join the Influitive system due to benchmarking across all of our customers, integrations with adjacent providers, building a proprietary network of power users, and cultivating network effects to provide increasing returns for every customer who uses our product.

Does experience guarantee success? Of course not, far from it. But a high rate of learning, constant sensing and iteration, goes a long way. I hope that the readers here can learn from my hard-won insights and build a category-defining SaaS company right, the first time.

If you’re doing SaaS for the first time (or even the second), the whole idea of charging for “Services” may seem an anathema. It sure did to me.

If your product is so easy to use that you barely need sales people, why in the world would I need to charge for implementation? For support? For training and engagement?

And isn’t it a bit unseemly to charge for services? Doesn’t it sort of say your product is Old School? SAP-level clunky?

And isn’t services revenue a friction-full waste of time anyway? I mean, it’s not recurring. It’s not true ARR. Does it even count? I’m a SaaS company.

Maybe. Maybe for the 15% of the world that is like you and me, charging for services doesn’t make any sense, perhaps even anti-sense.

Turns out though, that in the vast majority of six-figure contracts, virtually every seven-figure contract, and quite a few five-figure contracts … there’s always a services component.

And it almost always seems to average out to 15-20% of the ACV.

I remember the first time I experienced this confusion myself, on one our first high-five figure contracts. We had a brutal negotiation over price. And then, at the end, they send us a Schedule for Services. After getting beat down on pricing on the annual contract price … the Schedule for Services they send us (without me even asking) guaranteed us another $20k a year in services, with $250 an hour as the assumed price for the services.

I didn’t fully understand what was going on here until I became a VP in a Fortune 500 tech company.

But the answer, it turns out, is simple once you get it.

First, in medium and larger customers, there’s always change management to deal with when bringing in a new vendor. And they not only understand there’s a cost associated with that (soft even more than hard) … your buyer wants to do the least amount of change management herself as possible. If you can do the training for her for a few bucks and saves her a ton of time … that’s an amazing deal.

Second, in medium and larger customers, they often have no one to do the implementation work themselves. So even if you weren’t saving your customer theoretical money by helping with implementation, roll-out, support etc. … they probably have no one to do this internally anyway. You’re going to be doing some, a lot, or all of this for them. They are OK paying for this, in the enterprise at least.

And most importantly … it’s how business is done. And — budgeted. When most larger companies enter a new vendor into their ERP system, they typically add an additional budget item or two along with the core contract price. One additional line item for service and implementation, in most cases. And in some cases, an additional budget for other add-ons necessary to make the implementation a success (e.g., an EchoSign on top of Salesforce). Both of these are often line-item budgeted at 15-20% of the core contract value for the product.

So net net …

You probably can’t charge another 15-20% for services and implementation and training for a $99 a month product. Well maybe you could, but it’s probably unprofitable and not worth it.

But, as soon as the sale gets into the five figures, considering adding 15-20% for Services. You’ll probably get it.

And plan for charging, and delivering, additional services revenue in mid-five figure and larger deals. The customers are happy to pay, and in fact, will expect it.

And if you don’t charge … you’re just leaving money on the table. You’ll have to do the work anyway. You may send negative signaling that you aren’t “enterprise” enough, that you aren’t a serious enough vendor.

And importantly, this extra services revenue still “counts” as recurring revenue if it’s < 25% or so of your revenues. I don’t mean that literally (it doesn’t recur), but what I mean is that Wall Street and VCs and acquirers and everyone will still consider you a 100% SaaS company if <= 25% of your revenues are nonrecurring. And you’ll get the same SaaS ARR multiple on those extra services revenues.

Since SAP announced to acquire Concur and eventually closed the acquisition for $8.3B many people have reached out to me asking whether SAP overpaid for Concur. I avoid writing about SAP on this blog even though I work for SAP because this is my personal blog. In this case, I decided to write this post because this is the largest enterprise SaaS acquisition ever and this question unpacks the entire business model of SaaS enterprise software companies.

If you’re looking for a simple “yes” or “no” to this question you should stop reading this post now. If not, read on.

People reaching out to me asking whether SAP overpaid for Concur in itself is a misleading question because different people tend to compare Concur with different companies and have a specific point of view on whether the 20% premium that SAP paid to acquire Concur is justified or not.

Just to illustrate financial diversity amongst SaaS companies, here are some numbers:

This is based on a combination of actual and projected numbers and I have further rounded them off. The objective is not to compare the numbers with precision but to highlight the financial diversity of these companies based on their performance and perceived potential.

Market cap is what the market thinks the company is worth. The market doesn’t necessarily have access to a ton of private information that the potential acquirer would have access to when they decide what premium to pay. While the market cap does reflect the growth potential it is reflected in a standalone pre-acquisition situation and not post-acquisition.

The purchase price, including the premium, is a function of three things: revenue, margins, and growth (current, planned, and potential). However, not all three things carry the same weight.

Revenue

For SaaS companies, annual recurring revenue (ARR) is perhaps the most important metric. It is not necessarily same as recognized revenue what you see on a P&L statement and ARR alone doesn’t tell you the whole story either. You need to dig deeper into deferred revenue (on the balance sheet and not on P&L), customer acquisition cost (CAC), churn, and lifetime value of a customer (LTV) that companies are not obligated to publicly report but there are workarounds to estimate these numbers based on other numbers.

Margin

If you’re a fast growing SaaS company the street will tolerate negative margins since you’re aggressively investing in for more future growth. Margin is less interesting to evaluate a fast growing SaaS company, for acquisition purposes or otherwise, because almost all the revenue is typically invested into future growth and for such SaaS companies the market rewards revenue and growth more than the margins.

Margin by itself may not be an important number, but the cost of sales certainly is an important metric to ensure there is no overall margin dilution post acquisition. Mix of margins could be a concern if you are mixing product lines that have different margins e.g. value versus volume.

Growth

Current and planned growth: This is what the stock market has already rewarded pre-acquisition and the acquirer assumes responsibility to meet and exceed the planned or projected growth numbers. In some cases there is a risk of planned growth being negatively impacted due to talent leaving the company, product cannibalization, customers moving to competitors (churn) etc.

Growth potential: This is where it gets most interesting. How much a company could grow post-acquisition is a much more difficult and speculative question as opposed to how much it is currently growing and planned to grow pre-acquisition (about 29% in case of Concur) as this number completely changes when the company gets acquired and assumes different sales force, customer base, and geographic markets. This is by far the biggest subjective and speculative number that an acquirer puts in to evaluate a company.

To unpack the “speculation” this is what would/should happen:

LTV

This number should go up since there are opportunities to cross-sell into the overall joint customer base. LTV does reduce if customers churn, but typically preventing churn is the first priority of an acquiring company and having broader portfolio helps strengthen existing customer relationship. Also, churn is based on the core function that the software serves and also on the stickiness of the software. The most likely scenario for such acquisitions is a negative churn when you count up-selling and expansion revenue (not necessarily all ARR).

CAC

This should ideally go down as larger salesforce gets access to existing customer base to sell more products and solutions into. The marketing expenses are also shared across the joint portfolio driving CAC down. This is one of the biggest advantages of a mature company acquiring a fast growing company with a great product-market fit.

Revenue growth

As LTV goes up and churn goes down overall ARR should significantly increase. Additional revenue generated in the short term through accelerated growth (more than the planned growth of the company pre-acquisition) typically breaks even in a few quarters justifying the premium. This is an investment that an acquiring company makes and is funded by debt. Financing an acquisition is a whole different topic and perhaps a blog post on that some other day.

Margin improvement

This is a key metric that many people overlook. Concur has -5.3% operating margin and SAP has promised 35% margin (on-prem + cloud) to the street by 2017. To achieve this number, the overall margins have to improve and an acquiring company will typically look at reducing the cost of sales by leveraging the broader salesforce and customer base.

This is a pure financial view. Of course there are strategic reasons to buy a company at premium such as to get an entry into a specific market segment, keep competitors out, and get access to talent pool, technology, and ecosystem.

Based on this, I’ll let you decide whether SAP overpaid for Concur or not.

Disclaimer:I work for SAP, but I was neither involved in any pre-acquisition activities of Concur nor have access to any insider Concur financial data and growth plans. In fact, I don’t even know anyone at Concur. This post is solely based on conventional wisdom and publicly available information that I have referenced it here. This post is essentially about “did x overpay for y?,” but adding SAP and Concur context makes it easy to understand the dynamics of SaaS enterprise software.

The arrival of a new year (and the beginning of a new one) brings a flurry of cognitive churning. As individuals, we 1/ reflect on the year passed, 2/ ritualistically write and read predictions for the next year, and 3/ make resolutions and set goals that are intended to inspire us to greatness during the next twelve months.

I’ve come to see this all as distinctly human but also quite strange. 1/ We can’t do anything about what happened in the past, and many of our “reflections” end up being revisionist history. 2/ The predictions we make – at least the most interesting of them – are almost invariably wrong, but we make them anyway as a way to either “exert control” on our world or to show others how smart we are. 3/ Resolutions simply don’t work. Most are actually a mild form of self-flagellation. We list the things we “should” do that we didn’t do during the last year as if beating ourselves up for not having done them will result in a desired behavior modification. My sense is that for most people, little good comes of this, yet we repeat the rituals annually.

Companies go through a similarly strange year-end rituals. In the case of companies, the effort is focused on strategic planning and budgeting. The same reflection on the prior year, prediction of future events and goal-setting ensues and in many cases, with equally predictable results. Companies that simply go through the motions often rationalize prior years results, 2/ Make unreliable and sometimes unfounded predictions about the future and 3/ Set goals and objectives that are “shoulds”, rather than will-full organizational commitments.

I’m in search of ways to have these individual and corporate year-end rituals be more productive. I don’t yet have all of the answers. On the corporate side of the ledger, I know that I’ve seen the strategic planning and budgeting process executed well and very poorly. It really comes down to how the strategic planning and budgeting process inform the Company’s direction during the following year. Getting it right takes patience and intention.

PATIENCE OVER RIGIDITY

Patience is critical. January 1st is one of 365 days we could have chosen to begin our tracking of earth’s orbit around the sun. There is nothing special about January 1st, yet we treat that date as if it is fundamentally different from December 31st, 2014. The whole planning and budgeting calendar gets calibrated around delivering an approved budget by the start of a the new year. There is some merit in having deadlines for sure. But I’ve also seen too many companies rush through the planning and budgeting process because of arbitrary deadlines. I’m not suggesting that the planning and budgeting process shouldn’t have a sense of urgency; they should. But lets not pretend that the arbitrary dates we set for the planning a budgeting cycle are fundamental at the expense of thoroughness and solidarity. A management team must spend a lot of time together before they can gel around a strategy, developing the buy-in that is necessary for unified action. The process or driving organizational alignment doesn’t always fit into or nice, neat planning calendars.

I’ve also seen many occasions where a management team tries to force a breakthrough during the strategic planning process. My experience is that breakthroughs don’t happen during formal planning processes; they happen organically when they happen. Breakthroughs are inherently unpredictable. Companies need to be open to breakthroughs occurring organically outside of the formal planning process, rather than trying to force them according to schedule.

Seeing the flaws in the formal, calendarized planning and budgeting ritual leads me to think of strategy and fiscal management as an every-day activity, not a once a year activity. Strategic planning should come out of its “off-site” conference room hiding place and into the light of the every-day discussions between the members of a management team. When strategy is an every-day activity, the planning process becomes about tweaks and alignment rather than major breakthroughs.When strategy is brought into every-day discussions, there is no need for a forced breakthrough during a scheduled planning season.

The same goes for budgeting. Budgeting is worthwhile because it forces companies to think about resource allocation, that resource allocation needing to be aligned with a strategy. But budgets are of little predictive value. This is why I vastly prefer twelve month rolling forecasts, updated monthly. It is taboo to call each new monthly forecast a budget, but it is also incredibly constructive to take a renewed look at resource allocation every single month throughout the year. After all, there is no way your budget can account for everything that will happen (both within and outside your control) throughout the next twelve months.

I’ve seen too many cases where the budget becomes the numerical representation of the script. The rigidity of the traditional strategy and budgeting process can actually be counter-productive, creating a box that makes it difficult for a management team to navigate the year in a flexibly opportunistic fashion. It is hard to stay true to an intention when the numbers have you in a box.

INTENTION OVER TACTICS

Intention is hard to describe but easy to identify; but I increasingly feel it is imperative in both a corporate and personal setting. It’s akin to purpose. Some of the best descriptions of intention come from mindfulness practice. Deepak Chopra’s describes intention as follows:

Intention is the starting point of every dream… Everything that happens in the universe begins with intention… An intention is a directed impulse of consciousness that contains the seed form of that which you aim to create.

Powerful stuff. I want some of that in my day-to-day personal life and embedded in every company in which I’m an investor. Imagine what would be possible if a management team went into every work day with alignment on “a directed impulse that contains the seed form of that which you aim to create.”

The formal strategic planning literature would probably refer to this as strategic intent, popularlized by Hamel and Prahalad:

Companies that have risen to global leadership over the past 20 years invariably began with ambitions that were out of all proportion to their resources and capabilities. But they created an obsession with winning at all levels of the organization and then sustained that obsession over the 10- to 20-year quest for global leadership. We term this obsession “strategic intent.”

At the same time, strategic intent is more than simply unfettered ambition. (Many companies possess an ambitious strategic intent yet fall short of their goals.) The concept also encompasses an active management process that includes focusing the organization’s attention on the essence of winning, motivating people by communicating the value of the target, leaving room for individual and team contributions, sustaining enthusiasm by providing new operational definitions as circumstances change, and using intent consistently to guide resource allocations.

What I like about strategic intent is that offers a clear statement of purpose for an organization without delving into the specific tactics that should be employed to achieve that purpose. But it is very hard for an organization to keep its attention on purpose, allowing the tactics to evolve as necessitated by circumstances. But rigidity in tactics is a death-knell in fast-moving markets. And this is the core of my beef with traditional strategic planning; I’ve seen too many cases where strategic planning becomes tactics planning where each and every move to be executed by a company throughout the year is “scripted”. Scripting tactics might work in a 30-90 day window, but beyond that, it is a futile effort. Worse, it is damaging if a management team and/or board feel obligated to have the company follow the script despite changes in circumstances.

ALIGNMENT AND FLEXIBLE OPPORTUNISM

I don’t have all the answers for how to build more patience and intention into the strategic planning and budgeting process. But I know the desired outcome. I want a process that results in the organization being aligned on a core sense of purpose and creates a platform for the organization to be flexibly opportunistic. I’m not convinced that traditional strategic planning and budgeting are the right tools for the job. And so my search for the right tools, both in my personal and corporate life goes on.

In the meantime, be purposeful and adaptable in 2015. No matter what your strategy and budget say, the year will end well if you and your organization are purposeful and adaptable each and every day throughout the year.

The cloud has allowed modern, web-scale IT companies, like Airbnb and Netflix, to grow and flourish into booming enterprises all over the web. With its flexibility and efficiency, it supports the demand of an organization’s growth from zero to millions of users, allowing them to prepare for this potential growth, as well. Before the cloud, simulating millions of concurrent users and running scalability, stress, or stability tests was very hard to implement, if not impossible. Cloud technology has brought software testing, especially performance testing, to a whole new playing field.

Employee engagement and happiness is definitely one of the topics du jour for modern management and the future of work. Plenty of studies have already (and continue to) come out that show how low employee engagement is around the world (only 13% of employees are engaged and 87% are not!). Low employee engagement numbers correlate and oftentimes cause decreased productivity, waisted resources, and an overall toxic environment that nobody wants to be a part of…and why should they?

This is why it’s important to understand what employees around the world value in their jobs. So what do employees actually want and what do they care about?

A Tinypulse survey from 2013 revealed that transparency was the #1 factor for employee engagement

A 2014 SAP survey found that compensation is the #1 factor that matters most to employees

Another survey by the SHRM (Society for Human Resource Management) conducted in 2013 also found that compensation and pay was the #1 factor contributing to job satisfaction

Several other studies have also emerged around what employees care about at work but the most recent one from Boston Consulting Group which surveyed over 200,000 people around the world is one of the most comprehensive. Unlike previous studies which may point to flexibility or salary as the top factor for job happiness, BCG found that the #1 factor for employee happiness on the job is get appreciated for their work!

Based on the color coded categories you can see in the sidebar, out of the top factors the majority are grouped as either “work environment” or “job content and opportunities.” Perhaps what is more interesting is the contrary to some of the other studies which show compensation as the #1 factor for happiness, this report puts salary at #8. This reaffirms what I consistently see in organizations that I speak with. You can’t pay someone a lot of money, treat them poorly, and expect them to do their jobs well just because they get a nice check.

It’s important to remember that the “balance of power” is shifting away from organizations and towards employees. Today, we have a lot of choices to consider and several opportunities to evaluate when exploring how to make a living. Instead of going to work for a large established company that has more money, people can now:

join a small growing startup

become a freelancer on sites like odesk or elance

drive for Uber or Lyft

create their own products to sell on sites like Etsy

raise money through crowd-funding on sites like Indiegogo or Kickstarter

and much more

The war for talent has never been greater so in a world where cash is no longer the #1 factor attracting employees to organizations, these organizations must focus on other factors to create a more desirable and engaging place to work. What do you think of these recent number? Are you shocked or surprised to see that compensation is #8?

This isn’t intuitive, and is something I had to learn the hard way. Many VCs and others will give you the contrary advice. So will many VPs of Sales. Give it Time. Sales is Hard. That new VP of Sales joined with “nothing”. Be patient.

Patience is important in SaaS, no doubt. Just not here, not in this one case.

My learning, and point, was that if you have a Great VP of Sales … there’s just one thing I know:

That if you are growing X% without a Great VP of Sales, that once you hire a truly Great VP of Sales …that you should be growing faster than X% within one sales cycle. One. 1. Uno.

How much faster can vary. Maybe a lot, maybe just a smidge.

It really doesn’t matter what resources are there at the time (no leads or lots of leads; no reps or too many reps; no marketing help or too much help). That will just impact how much better, how much faster things will go.

But … faster. Period.

One Sales Cycle.

I learned that myself. And my case study is here. Now, I’ve gone back with both my VP of Sales (Brendon Cassidy) and 2 of our sales directors, now each serving as VP of Sales at other SaaS companies. Did it happen again? Did they improve sales in less than one sales cycle?

Yes. Every. Single. Time.

Let’s dig in.

First up, how did Brendon, my VP of Sales, do the next time at bat? After finishing up a strong stint at Adobe after our acquisition, Brendon joined Talkdesk a few months ago as VP of WorldWide Sales. As the second U.S.-based employee, with essentially zero infrastructure under him.

Sounds tough, doesn’t it? Indeed.

And how well has he done? Even with zero infrastructure on Day 1 — he more than doubled sales in just 60 days. Again.

Net new sales (not total MRR, just new sales revenue from the sales team) below:

When he joined, Talkdesk at the time was doing about $1.4m in ARR. It will end the year at almost $4m ARR. Neck-bending acceleration. But how?

Same old story as last time. Same old story as when he joined EchoSign. And same story as when he joined LinkedIn before that.

Mega-impact. In one sales cycle. Irrespective of what was, or wasn’t, there when he showed up:

What happened? Did Brendon join as the world’s sales expert in call and contact center software? Of course not. In fact, it turns out be an even more complex sale than EchoSign.

Did he magically conjure leads out of thin air? No. Well a couple. But really there wasn’t enough time to do this.

What he did .. again … was:

1-/ Bring in a great team, almost immediately. 3 amazing reps that had worked with him before. A world-class solutions architect. Etc.

Combine 1+2 = dramatic increase in revenue per lead. Increase the revenue per lead, even with no other changes … and your revenue goes up. Period.

Once again.

>> Ok great, you say. But that guy is some sort of magician. He did it before. Give me more case studies. Ok.

Next up, Sam Blond VP of Sales at Zenefits. Sam was our top Director of Sales at EchoSign, having rocketed through the ranks after coming in as our first SDR. Sam was Brendon’s right hand man. The padawan to the jedi. I introduced him to the CEO of Zenefits when they had one rep and < $1m in ARR. He joined in January ’14. Fast forward twelve months, they’re at ~$20m ARR.

Ok so obviously Zenefits has done awfully well this year, growing > 20x in 12 months. Wow. But how long did it take Sam to have a quantitative impact? 6 months?

Half a sales cycle.

Again, net new sales (not total MRR, just new sales revenue from the sales team) below:

Sam came in. He knew nothing about selling insurance. Nothing.

But …

He brought in 3 great reps that had worked with him before. Introduced a more aggressive sales closing process, and halved the sales cycle.

Just those two factors alone doubled the Revenue Per Lead.

That’s how he made an impact in Half a Sales Cycle. No magic. Just 100% pure execution of The Playbook.

>> Ok, Brendon is a magician, and Zenefits is an outlier, you say. Show me more.

Ok.

Next up, Stephen Green, VP North American Sales at Showpad. That’s him on the right. Stephen was another Director of Sales at EchoSign. In fact, Sam brought him in to EchoSign originally. Showpad enables field reps to dynamically present content on their tablets in the field. It’s very cool.

And they’ll will hit $5.5m ARR this year growing 150%+ YoY (from $500k to $5.5M in under 18 months).

But having known the founders since they first came to the U.S. around $500k in ARR, let me tell you, it hasn’t all been easy. It’s taken a while to get the lead gen engine going, go upmarket, etc. etc. It’s a space where awareness is building.

So OK. What happened when Stephen Green joined earlier this year?

Here’s a chart of net new revenue from the North American sales team (i.e., not all bookings, just new revenue from new accounts):

Same old story. Was he an expert in the Showpad “solution” when he joined? Nah. Were huge deals just waiting to close sitting in the pipe when he joined? Not exactly. Was there a new, amazing product release that changed the game? Nope.

He just did The Playbook. He’s a seasoned sales leader. He knows how to talk to customers. How to ask for the budget. How to get deals closed faster. How to cut sales cycles and ask for the e-signature. And he also brought in other reps almost immediately that upgraded the team.

So what happened? Again – Stephen reduced sales cycles from 15 weeks to 6 weeks. Again – he increased the quality of the closers. Together, these factors doubled the revenue per lead. In one sales cycle.

Ok you’re cherry picking, Lemkin.

But I could tell you more. Mohammad Ocean from our team did the same at Pipedrive within 60 days. He took inside sales revenue (vs. self-service) from $0 to $50k/month in less than 60 days. Boom! Greg Smith is doing the same at Parklet.co now too.

Ok, Ok you say — but what if your sales cycles are really, really long. And all outbound driven. Even with the World’s Greatest VP of Sales, I Won’t See Results That Fast.

Now Guidespark has been, until recently, a 100% outbound model. With relatively long sales cycles, given its six figure+ deals and focus on outbound sales.

It would probably take 6+ months to know here if the VP of Sales was going to make it (given the lengthy sales cycles + outbound approach). The new VP of Sales would have to quickly hire and scale an SDR team once he joined. And then work those raw leads into opportunities, which takes time. And then get them into a 6+ month sales cycle.

You simply aren’t going to know in 90 days in a 100% outbound model with a 6+ month sales cycle if the VP Sales is going to make it And Keith Kitani, the CEO didn’t — at least not quantitatively (though he knew quickly from the forward progress and opportunity creation that Shep was going to kill it). But by month 6 it was clear in the actual numbers that it was working, really changing, and the full quantitative results were there by month 9. One full, long, sales cycle.

By then, Shep Maher, the VP of Sales was just killing it:

A longer sales cycle = a longer time To Know. But again, results in one (albiet longer) sales cycle.

So net net: 7/7 times in these case studies … You’ll Know if the VP Sales isn’t Going to Work in Just One Sales Cycle.

You can’t predict after that how well a Great VP of Sales will do exactly. But you can predict was almost 100% certainly if she won’t work out if there isn’t some material improvement in one sales cycle.

So … again …

Don’t wait more than one sales cycle to make a change. 70% of VPs of Sales don’t work out. Maybe, even make a change in half a sales cycle. You’ll know even by then.

(And, p.s. — one more learning. If you do have a team like you see above, like I did — Never Sell. Keep going for it. Because it just gets better.)

—

>> Hear more of these stories: Zenefits, Talkdesk, Guidespark and More at The SaaStr Annual on Feb 5! Sign up here ASAP — it’s 90%+ sold out.

Recently a major set of milestones was reached for the EMC Federation’s involvement with OpenStack. First, EMC and it’s affiliated companies and brands (VMware, VCE, Pivotal, RSA, Cloudscaling) determined a cohesive strategy for engagement with the OpenStack Foundation Board. Second, EMC appointed a VMware employee, Sean Roberts (@sarob), as the official representative of EMC and hence the EMC Federation generally. This means that I am no longer the EMC (Cloudscaling) OpenStack Foundation Gold Director.

The why of this may be confusing so I will briefly explain the background and then provide some more details on what exactly transpired.

Background
By and large the OpenStack bylaws have stood the test of time quite well at this point. Most of the upcoming proposed changes are simply things we could only have known in hindsight. One area that I think the bylaws got right are the articles that limit participation by “Affiliated” companies:

2.5 Affiliation Limits. Gold Members and Platinum Members may not belong to an Affiliated Group. An Affiliated Group means that for Members that are business entities, one entity is “Controlled” by the other entity. “Controlled” or “Control” means one entity owns, directly or indirectly, more than 50% of the voting securities of the Controlled entity which vote for the election of the board of directors or other managing body of an entity, or which is under common control with the Controlled entity. An Affiliated Group does not apply to government agencies, academic institutions or individuals.

What this means, in essence, is that if there are two companies with a relationship like parent/child or joint venture, in which one owns more than 50% of the other, only ONE of the companies can join the OpenStack Foundation as a Gold or Platinum Member. This is a good measure to prevent a group of companies from “stacking the deck” within the OpenStack Foundation and using that as leverage to control or dominate OpenStack, which is something no one wants. I also need to note that any company may also have one to two Individual Members represent them. Two Directors from any single affiliated group is the maximum representation on the OpenStack Board of Directors. This works out to one Gold or Platinum Director plus one Individual Director OR two Individual Directors. This is why I am allowed to run as an Individual Director in 2015. Of course, I would very much appreciate your support in this endeavour!

So, things became very interesting upon EMC’s acquisition of Cloudscaling as it inherited the Gold Member status of Cloudscaling while VMware also retained their Gold Member status, creating an edge case where the Bylaws were technically in violation. This required EMC and VMware to work closely with the Foundation staff to resolve the situation.

This is why VMware resigned their Gold Member status and why EMC appointed a VMware employee as a representative for EMC and hence the EMC Federation.

Which means we should quickly explain what the EMC Federation is.

EMC Federation
The EMC Federation is composed of a number of different entities, from security companies, to storage, to Platform-as-a-Service, big data, virtualization, converged infrastructure, and now OpenStack via the Cloudscaling acquisition. Members of the EMC Federation are already representatives on the OpenStack Foundation Board of Directors, OpenStack Foundation Gold Members, OpenStack Foundation Corporate Sponsors, and have deepening ties to OpenStack generally.

In April of 2013, EMC and VMware launched Pivotal and created a federation of its businesses. EMC is the majority owner, by a large margin of VMware, Pivotal, and RSA is a wholly owned subsidiary. Recently, VCE, the leader in converged infrastructure joined the Federation. Federation messaging and joint solutions were prominent during EMC World 2014. The following diagram gives you some idea of how the Federation is organized.

When asked about why the Federation model is needed and what differentiates the companies from competitors, the answer is “choice”. While VMware is the leading hypervisor, EMC also desires the opportunity to forge alliances and solutions with Microsoft, Citrix, and others. Conversely, VMware desires to support and work with a variety of storage and security solutions.

Similarly, members of the Federation desire to operate and support OpenStack’s mission in different manners (converged infrastructure, appliance models, and software distributions) while also supporting the joint goals of empowering and promoting OpenStack within the enterprise.

The EMC Federation OpenStack Strategy
As a group, the EMC Federation strongly desires to play by the rules of the OpenStack community, while deepening our commitments and contributions. As a group we are already a #6 contributor to the latest release and we aspire to go even further. OpenStack is a critical strategy for the Federation as a whole, even for members like Pivotal who see a significant increase in the number of enterprises who wish to run CloudFoundry on top of OpenStack.

What this meant for us when resolving the Bylaws issue is that we wanted to have the entire EMC group represented as a whole, such that others like VMware, VCE, and Pivotal, could all be a part of the picture. The Bylaws however require that the Gold Member selected is an actual legal entity.

Our final resolution was then to have VMware resign their Gold Membership, EMC retains the Cloudscaling Gold Membership, and in order to show EMC Federation coordination, EMC is appointing Sean Roberts to represent EMC, and hence the entire Federation, as our Gold Member representative. Finally, all of the branding on the OpenStack Foundation website will be a Federation-oriented branding (EMC2).

Meanwhile, behind the scenes, I’m working closely with Sean Roberts of VMware, Josh McKenty of Pivotal, Jay Cuthrell of VCE, and others to make sure that we have cohesion across the Federation.

PR is an insanely valuable activity in early-stage companies. Very few investors understand this and even fewer startups. When you’re an early-stage business every dollar matters and because many startup teams these days are very product & technology centric they often miscalculate the importance of PR. I believe PR is often not tangibly measurable and for quant-oriented people this is hard to accept.

The benefits of PR are exactly that: Immeasurable. They are silent. They don’t show up in a calculation that says I spent $7,000 and I got X-thousands inches of press. It doesn’t work that way.

Why PR?

1. Recruiting – One of the hardest tasks of any startups is recruiting world-class talent. It is possible, of course, to recruit great people as an underground startup but it is 10x easier when qualified candidates whom you may not even know read about your company and are excited by your vision. I work with a startup who has an insanely talented & connected team but still struggled to add staff. After their recent PR they reported back to my that candidate inflow has gone up dramatically. As I said, PR has silent benefits that you barely recognize until your newly acquired team is firing on all cylinders and many people sort of forget the reason they attracted such great staff was from great press coverage / world-of-mouth.

2. Business Development- Biz Dev is hard. You’re a startup and every major company you meet is trying to size you up as to whether it’s worth their time striking a deal with you. Then they read about you in the American Airlines magazine or Wired or Recode and they think to themselves, “we should really reach out to that company.” You get the call. You’re happy. Business is going well. There is no attribution on that inbound phone call. By the time they’ve called they may not even remember themselves where they first heard of you. PR pays dividends in Biz Dev.

3. Fund Raising – No self respecting VC would admit (even to themselves) that they are influenced by what they read about you in the press. But human psychology can’t be ignore – we are all influenced by what we read. Sometimes you read it directly and think, “I should really reach out to that company” and sometimes it comes in the form of world-of-mouth like somebody I work with mentioning a company they read about. But as I like to tell entrepreneurs, great PR could add $10 million to your valuation or increase your chances of closing a round 2x and either case is a reason to make sure you have good press. It’s much hard to get funded as a company nobody has heard of.

4. Staff Morale – Often overlooked is staff morale. I once asked somebody at Accenture (where I worked early in my career) why they advertised so much at airports. The reply was, “So many of our employees fly every week to projects and by seeing us advertised every time they fly they feel more proud working for our organization.” Well, at least until Tiger Woods decided to send a few too many racy text messages But the reality is that employees love seeing their company get positive press. They get feedback from their peer group, boyfriend and parents. Classmates call. People give them attaboys. Press matters. You can’t measure the retention benefits but I promise it exists. Just like negative press hurts.

5. Enterprise Sales – The very first thing a potential customer does when you email or call to set up a meeting is Google you. When they want to propose spending money with you their boss Google’s you. So does the enemy who is fighting for the customer to choose another vendor. Give your champions ammunition.

6. Future PR – This is something often overlooked. When you eventually want your home run coverage in the Wall Street Journal or are trying to convince Good Morning America to have you on their show – the first thing the journalist or executive producer will do is Google you. If they find great pieces on you from your past PR they are more likely to want to talk. Of course you need a new angle to get a journalist interested because they don’t simply want to write what everybody else has covered. But neither do they want to be out on a limb as the first person predicting you will change the world. Press loves company as much as they love exclusivity. Ironic, of course. But true. I promise.

7. Customer Acquisition- I left customer acquisition for last intentionally. Why? Because every single company I talked to thinks this is the reason to do PR and often it is the least important reason. The narrative goes like this, “We appeared on TechCrunch” or “We were featured in the App Store” but we didn’t get nearly the downloads we expected. Many people downloaded our app / visited our website / etc. but didn’t convert to sales. So this was a wasted effort. We’re going to dial down our PR for a while.”

See points 1-6. Rinse. Repeat.

When I was the CEO of my first startup our company won the B2B PR company of the year in the UK. Not for startups – for any business. In the write up of our success I was quoted as saying, “If I had $1 dollar left to spend on marketing I would put it to PR.”

If anybody tells you differently be suspect. Most people don’t understand the silent benefits.

What have your experiences been? What stories can you tell about the silent benefits to your company?

I was at a dinner recently in Chicago and the table discussion was about building great companies outside of Silicon Valley. Of course this can be done and of course I am a big proponent of the rise of startup centers across the country as the Internet has moved from the “infrastructure phase” to the “application phase” dominated by the three C’s: content, communications and commerce. But the dinner discussion included too much denial for my liking.

I think startup communities being simple cheerleaders doesn’t help anyone. Those of us outside Silicon Valley need to make an effort to effect change not just wish for it.

At the dinner some of those arguing that Chicago has everything it needs now that it has built: GroupOn, Braintree, GrubHub and others and that it has “come along way” and “will never get the full respect it deserves just because it’s not Silicon Valley.” But I think this misses the point. I’m a very big fan of Chicago. I started my career at Andersen Consulting (now Accenture) so I went to Chicago many times a year for nearly 9 years. I then got my MBA at University of Chicago so I secretly pull for local entrepreneurs as long as they don’t make me visit in the Winter any more.

But no community can become complacent with the wins that it has. It’s not the great companies you build, it’s the silent killer of those that should have been build locally and weren’t. It’s the thousands of jobs that weren’t created but you don’t even know it.

Think about Facebook had it stayed in Boston. Could it have become the behemoth that it is today? Who knows. But I’ll bet the Boston community would take 50% of the success of Facebook built locally. And the truth is that successful startups beget more successful local startups, wealthy VPs who go on to build their next startups, etc. Even Mark has acknowledged moving wasn’t the be all, end all in this famous interview

“If I were starting now, I would have stayed in Boston. [Silicon Valley] is a little short-term focused and that bothers me.”

Boston is still a great tech hub. But wouldn’t it want to be great PLUS have Facebook?

We have similar stories in LA and most people don’t know it. For example, Lookout is a mobile security company that was founded by three talented graduates of USC. They started their company in LA but a couple of years after raising capital from Khosla Ventures in the Bay Area they ended up relocating there. A few years later they announced $150 million in a funding round at $1 billion+ valuation and are ramping up jobs to secure their market-leading position. You could say the team would have gone North anyways. Perhaps – who knows? But I know with local funding and local support that’s certainly less likely.

And consider Snapchat – one of our hometown favorites as they’re based in LA (Venice Beach). Luckily for our community the founders decided they wanted to build their company in LA regardless of not having local funding from LA. That’s our great gain as Snapchat has also raised a lot of money at a monster valuation ($10 billion reported) and has been scooping up talented Stanford engineers and relocating them to LA. Locally we call it “the Snapchat effect.” The VPs of SnapChat will be LA’s great founders 5 years from now.

Silicon Valley is littered with startups where the founders were originally in LA. Klout was an LA company – sold for $200 million to Lithium. As was FarmVille (sold to Zynga) and many, many others.

Local capital matters. Local mentors matter.

That was my original idea behind Launchpad LA. I figured if we couldn’t fund every company locally we should at least embrace them as a community and show that we’re willing to mentor them whether they raise their money in town or not.

So what can a community do?

I often point out the story of when we raised our fourth fund a few years ago. I went to see several LP funds in Boston. At least twice I had conversations that went like this, “Yes. It’s true. Your fund performance has been great. But there’s also several great funds in Boston and while our first priority is to returns we have an equal responsibility to local funds and local jobs.”

LA public pension funds and endowments have historically been the opposite. I think government and community members need to understand that capital formation is an incredibly important part of economic revival. People often say, “Great entrepreneurs will build a community and the capital will follow.” I don’t see much evidence of that. I think it’s a combination of the two. It’s clear capital with no talent ends up having to travel to do deals. But talent with no capital is another word for migration.

And then there is public policy. Historically the City of LA has been hostile to startups. I’m reminded of LegalZoom who was founded in LA but moved it’s headquarters to Glendale and much of its operations to Austin, Texas. While LA was trying to impose archaic taxes on the firm and seemed to care less about its existence since it was a “startup” – the first lady of Texas welcomed them to Austin by picking up the CEO at the airport on his first visit there. It’s no wonder hundreds of jobs migrated. Luckily since then we elected Mayor Eric Garcetti who understands the importance of startups and of technology and venture capital on job creation.

But we still need more funds. No – I’m not worried about the competition. We’ll win our fair share of deals. But when you remember the Snapchat effect you see that I gain even from the deals we didn’t get to do. I’m guessing the future leaders of Lookout will build companies in the Bay Area.

Don’t get me wrong. Chicago has made strides. The Pritzker Family has been very active and the opening of 1871 as an entrepreneurial hub is a great example. But my conversations with countless Chicago entrepreneurs suggests it has similar issues to all non-Silicon Valley centers: not enough venture capital, too few tech angel investors, not enough talent for product management or engineering, not enough local tech powerhouses to drive local biz dev / keiretsu. I think this is true of LA, NY and many other tech communities so I’m not singling out Chicago.

My point is this … cheerleading isn’t enough. We need to help create local venture capital funds who may be national in investment strategy (as we are) but who will do more than their fair share of fundings locally (for us that’s 50%). Fund formation + local mentors + local talent = a shot at creating successes that drive the future job growth of our great cities.

The role of IT and CIO continue to evolve as broad economic and cultural changes shift business expectations of technology in the enterprise. As a result, this is a tumultuous time for IT and many of the old rules defining CIO engagement no longer apply.

Technology disassociated from direct business consequence, decision-making, and action is not a viable strategy for today’s CIO. Modern IT must help departments across the organization make better and faster decisions. Although infrastructure and security remain fundamentally important considerations, business improvement is the core mission of IT.

A new study from the Society for Information Management (SIM) documents the changing role of IT and the CIO. The report is among the most detailed and transparent I have seen, representing a huge cut above the shallow, self-serving documents so often peddled in the name of research.

To complete this study, called the 2015 SIM IT Trends Comprehensive report, SIM received 1,002 responses, including answers from 839 senior IT leaders representing 717 unique organizations. Of these, 451 identified themselves as CIO, by title or role. The report includes an appendix describing the research methodology in detail.

The press announcement includes this brief summary:

IT spending is on the rise, with companies on average spending more than 5 percent of revenues on IT (up from about 3 percent from just a few years ago). To illustrate, that means that IT budgets of the largest companies in the Fortune 500 can be as large as 75 percent of all of the companies on the list.

Largely as a result of that investment, IT is becoming more strategic and more complex. While at the same time CEOs are complaining that CIOs “just don’t get it.” IT is keeping the lights on, but CEOs aren’t getting the strategic foresight and innovation they are looking for from IT leaders.

Companies are investing in big data in big ways to make better business decisions.

Cyber security threats are driving more IT spending to help combat those threats.

Top IT management concerns

Respondents choose up to three issues from a list of 40, to determine the most important points of concern. This table lists the top ten:

The report explains that historical data supports the assertion that IT priorities are becoming increasingly focused on business issues:

there has been a shift in priorities and focus among organizations and their IT leadership away from tactical and operational IT issues like efficiency, service delivery, and cost reduction to more strategic and organizational priorities like business agility, innovation, the velocity of change in the organization, IT time to market, and the value of IT to the business. It seems that IT is becoming more strategic and business-focused and presumably the organization is becoming more digitized.

Largest IT Investments and Most Important Technologies

In general, there is good correspondence between level of investment and technologies that IT believes are most important to the organization. The following table compares respondents’ most important investments to their largest investments:

The report comments on differences in the two columns:

As for the differences in the rankings between the two lists, Data Center Infrastructure, a capital intensive item for an organization, ranks only sixth on the most important technology list (with 13.1% selecting it), but second on the largest IT investment list (selected by 19.1%). Legacy Applications, selected by 5.6% of organizations and ranking as the 15th largest investment, was selected by 7.9% to rank 10th as a most important technology. Big Data is 10th on the top 10 list of largest investments (selected by 8.8% of organizations), but only ranks 12th on the most important list (selected by 7% of responding organizations’ senior-most IT leaders).

IT spend as a percent of revenue

Percentage of revenue is a useful tool for organizations to benchmark their level of IT investment against similar companies. The respondents in this survey include a broad range of industries and company sizes. For this question, 493 unique organizations responded with their investment as a percentage of revenue. As showing in the graph, these companies averaged 5.145 percent in 2014:

The report comments on the investment level reported by the survey:

average IT spending as a percentage of revenue for the past three years has been significantly above the 10-year (2005-2014) average of 4.08%. This may represent a “new normal”; however, it may also to some extent be indicative of “catch up” IT investments making up for the lean “Great Recession” years of 2008 to 2010, when both revenue and IT investment contracted in most organizations (see Figure 13, Figure 15, and Figure 16). This increase is also being affected by new investments in cloud and shared services, digital marketing and analytics, and health care informatics, as well as the increasing digitization of organizations in general.

IT alignment and credibility

The changing role of IT raises profound strategic questions for the CIO and his or her relationships with other parts of the organization. Questions around level of investment in IT, CIO priorities, and customer satisfaction with IT revolve around the relationship between IT and other departments. SIM recognizes this and therefore added several questions on IT strategy and innovation to the current year’s research:

Concluding thoughts

The SIM research is solid, and CIOs should feel confident using the results to benchmark their performance against other companies.

The report includes data on a variety of topics, but perhaps the most important relate to IT’s capacity to formulate business strategy and participate in high-level decision-making. The following table lists CIOs’ top performance metrics:

These metrics show that CIOs understand the importance of demonstrating value to the business. However, a body of other research indicates that many business leaders do not think IT provides sufficient value. I will write about this in more depth later, but in one study from Deloitte, for example, only 49% of CIOs said their own IT organization is a strong partner to the business. It is a striking admission for CIOs to acknowledge lack of effectiveness in this key area.

I asked the lead researcher, Professor Leon Kappelman of the University of North Texas, for his advice to CIOs. Kappelman offers four keys to being a “CIO survivor,” as he calls it:

Learn the business; be the business; become the business

Develop a flexible, agile infrastructure to ensure that IT can keep pace with business changes

Build a strong team with a strong bench

Create value-creating partnerships with other senior executives and business leaders; Do the same with customers and suppliers of the business, and with your IT vendors

The message to CIOs is clear: there is categorically no substitute for developing strategy-level relationships with senior business decision-makers and other constituencies. These relationships form the backbone for advancing IT and providing higher value to business partners.

As many of you may know, Trish Bertuzzi and the folks over at the Bridge Group publish a lot of great stuff on Inside Sales strategy and operations, including inside sales compensation benchmarks, lead development rep best practices, outbound selling strategies, and on an on.

Their upcoming 2015 Inside Sales Metrics and Compensation report will feature expanded coverage and focus of SaaS inside sales benchmarks in an extra effort to service the SaaS community. But the numbers are only as good as the data, so I’m reaching out to all my SaaS sales colleagues to TAKE THE SURVEY!! It only takes 6 to 8 minutes to complete. As motivation, SURVEY PARTICIPANTS WILL RECEIVE A PRE-RELEASED COPY. If you don’t do it, your competitors will .

The sweeping opportunities arising out of digital centered structural changes in enterprises are really enriching and can create deep business impact in the short and, medium and long-term. The participants in the digital world enjoy high degree of empowerment with a mouse click or with access from any digital front-end device. In the multichannel world, with different ways of participants coming together, a wide range of combination of association get formed across the offline and the online world. Many of the associations will be experimental in nature to start with and over-time the collaboration aspects will become more and more important and will help create value for the enterprise/ecosystem. Seen at a different level, it can be seen that digitalization is substantially changing the ethos of interaction in our social and business lives.

On an ongoing basis, one can see that digital disruption is shifting the sands of the profit landscape as well. Studies show that enterprises that have embraced digitalization report better returns and industries affected by digitalization, by being unprepared have had to sacrifice sales and margins. Clearly, value is migrating and enterprise leaders aren’t always sure if they’re experiencing short-term cyclical change or long-term structural change. There is consensus across the board in may enterprises that legacy assets are losing value and there is a widespread need to invest to capitalize on new, digital-related opportunities. More subtly, companies are developing new digital value in their supply chains and processes. Due to the wide reach and deep impact digital can enjoy, many enterprises are forced to rethink the very nature of their core business.

It’s now well known that traditional barriers of entry don’t hold water with players muscling in with digital at their core of business. Boundaries get distorted, categorization and niche gets torn apart, enabling a new wave of entrepreneurs and getting innovation aficionados into the mix. Digital technologies and their extensions can power a phenomenal range of technologies centered innovations – these could be far reaching in their impacts and can have a powerful cascading effect across the ecosystem. The traditional players face enormous pressure to defend and grow their turf and this collective continuum of changes and their impact – bot for winning, defending and sometimes losing can be termed as “Digital Disruption” . The intensity and the range of time to experience this disruption may change across sectors and geographies. As with any major change, in some sectors, the impact may be large and may be felt at once or over time and in some sectors,the impact may be felt only over time. Some sectors/ lines of business may actually get created because of the digital forces in action.

Enterprises – big and small impacted by the digital wave of disruption have really no choice but to find effective ways to respond to defend or take advantage to grow. With the digital onslaught being so powerful – think CAT5 storm is passing through your region – the impact will be deeply felt. The enterprise response can happen at various levels and typical response would be centered around:

- Reimagining corporate strategies and business models

- Customer centricity

- Revenue stream reassessment

- Cost structure revisions

The winners here take the long view and approach any change top down – with deep commitment and care. The wide ranging impact should factor in the changes needed internally and a clear appreciation of the way traditional business landscape is getting changed – the very nature of demand generation, consumption, competition, communication, customer expectations – all have profoundly changed. The balance of power in the commerce equation between the producer and the consumer is now firmly loaded in favor of the consumer . The wide adoption of connectivity and the resultant wave of information and the ability for the consumers of the information to take part and share their views to the potential next set of customers in real time gave made the consumers the unanointed kings and queens in the equation.

First the issues around strategy – its important to realize that one size fit all wont work for all, this wont work for players even within the same industry – as value chains undergo huge change. The opportunities and threats could significantly change for different business inside enterprises. In recognition of this, the approach to embrace the digital wave has got to be so specific that business need to define the right strategy not just at the enterprise level, but preferably at the business unit level. The core model of operation needs to be reassessed for enterprises trying to embrace digital – in this universe, the power of information and data are so formidable, that many times business integration revolves around different ways of rejigging the information flow and set stage for opportunities to create more value across the chain.

The question at a high level that needs answer for every business is how to positively embrace digital disruption. While, this is a very detailed exercise calling for a rigorous evaluation of possibilities to be engaged in a highly disciplined way – assessing possibilities, opportunities for changing the game and for further upsides in traditional business outcomes, it can be safely said that the key tenet of digital disruption is about the range and amplitude of change that business could experience soon. This also involves assessing the myriad possibilities that can be reaped when powerful digital opportunities get pursued across various business streams. Digital at its heart can allow business by helping them through innovative means to target new customer segments, power new business models and in some cases help create entirely new lines of service for the enterprise. Digital technologies can help enterprises to explore adjacent markets more easily – either on their own or as part of a larger ecosystem. Repeat this for exploring adjacencies in customer segments, geographies, product segments etc. Scaling up and scaling wide can become distinct possibilities for business, when they embrace and get digital.

Already digital promotional/ad spend is becoming a dominant category in an enterprise customer/prospect reach out efforts. These mechanisms help enterprises target newer segments leveraging the ecosystem – search engines and low cost online advertising etc. The data that gets collected will embolden business to more specifically target their customer-base, opening possibilities of cross sell, upsell and rich returns. For example, location information discerned through maps or email usage or spreading content through multiple channels, value added data procured from mobile service providers – all these help in better targeting the enterprise customers. The customer segmentation models gain more maturity by learning from enterprises more focussed on enhanced targeting mechanisms.

Some strategies that help enterprises reach new customers include adequate leverage of the 4P’s of marketing and beyond. For example, social is becoming a significant frontier in targeting – in allowing business to interact directly with customers and prospects and being able to reach out to them at very low cost to the enterprise. With adequate leverage of social enterprises gain much better targeting insights, leading to more better granular segmentation.The highest level of maturity in an enterprise digital journey is the ability of the enterprise to leverage the pervasive digital connections that exist in their ecosystem connecting systems, people, location and things. All the technologies – ranging from smartphones to remote sensors, need to be appropriately leveraged for pursuing strategy refresh, customer centricity, creating new business models. realigning the cost structure and setting up new new streams of revenue. Such measures would collectively propel the enterprise to acquire a digital edge, which it needs to continually review and hone for success.